FTC rescinds guidance that favored vertical mergers

The Federal Trade Commission on Wednesday rescinded Trump-era guidelines on mergers combining businesses at different levels of the supply chain in a move that signals stricter oversight on dominant companies by federal antitrust enforcers.

The guidance on so-called vertical mergers issued last year laid out how the FTC and Department of Justice will analyze whether deals violate antitrust laws.

In an open meeting, the commission voted 3-2 on party lines to repeal the 2020 revisions that said vertical mergers benefit consumers by creating efficiencies that lower prices. The business friendly approach essentially presumed that all such transactions are lawful.

Wednesday’s decision creates a split between the FTC and the Justice Department on standards dictating review for vertical mergers.

The Justice Department said in a statement that it will follow the 2020 guidelines but is considering changes to both horizontal and vertical merger guidance.

“The department’s review has already identified several aspects of the guidelines that deserve close scrutiny, and we will work closely with the FTC to update them as appropriate,” said Richard A. Powers, acting assistant attorney general of the Justice Department’s antitrust division.

The 2020 guidelines to vertical mergers, the first update since 1984, was spurred by the government’s unsuccessful bid to block AT&T’s $85 billion acquisition of Time Warner.

Federal antitrust enforcers have generally been permissive in recent decades of mergers between companies that do not compete directly against each other—such as a computer manufacturer acquiring a parts supplier.

But under Chair Lina Khan, the FTC has pursued an aggressive enforcement agenda aimed at reducing consolidation in various industries.

Excessive market concentration enabled by overly tolerant merger guidance has led to supply shortages during the pandemic, according to Commissioner Rohit Chopra. Small businesses in particular are harmed, he said, because dominant companies have the market power to demand suppliers fill their orders first.

“We cannot ignore situations where firms in many sectors are becoming too big to fail, and their short-term rationalization and cost cutting creates systemic risk of widespread shortages and outages,” he said.

Republican commissioners Noah J. Phillips and Christine S. Wilson voted against the repeal.

Phillips argued that vertical mergers cannot reduce competition because “by definition, they do not remove competitors” but simply “combine firms in a buyer, seller relationship” to improve efficiency and benefit consumers. He pointed to Disney’s acquisition of Pixar.

“Once combined, Pixar revitalized Disney’s animation department, while Disney used its resources to expand Pixar’s production and distribution, resulting in many beloved movies,” he said.

Wilson emphasized that the FTC is withdrawing guidance with no replacement at “precisely the point in time when businesses are attempting to address the supply chain vulnerabilities that COVID exposed.”

The tech industry has pushed back against the decision.

The Consumer Technology Association, whose members include Amazon and Apple, said in a letter to the FTC that the sudden shift away from traditional mergers reviews will “stifle companies’ ability to plan, invest and innovate.”

Amazon’s acquisition of MGM Studios is under review.

After decades of lax antitrust enforcement, the FTC has expanded its authority by repealing a long-standing policy that limited the types of business practices it could challenge and warning that big technology companies could be forced to surrender the proprietary algorithms that fuel their businesses if they continue to misuse consumers’ data.